Lycos Acquisition Signals Familiar Strategy

In another episode of Web portal one-upmanship, online navigation service Lycos Inc. has agreed to acquire Internet white-pages directory and free e-mail company WhoWhere? Inc. for $133 million in stock.

Melissa Bane, senior analyst with The Yankee Group, Boston, said the ongoing wave of acquisitions by portal companies is part of a three-pronged strategy that should be familiar to direct marketers: customer (or in this case, viewer) acquisition, conversion and retention.

"Acquisition in this space is buying eyeballs," Bane said.

The deal will give Lycos, Framington, MA, 9.3 million e-mail subscribers from WhoWhere?'s MailCity and 1.3 million registered members of personal home-page site Angelfire.com.

"Instantly, Lycos becomes a company that is tight on the heels of Yahoo by any audience matrix," said Lycos president and CEO Robert Davis.

While Lycos is in acquisition mode, others are busy with conversion and retention strategies, Bane said. She used Yahoo's June purchase of online mall Viaweb for $49 million as an example of a conversion strategy.

"They're building relationships with merchants and trying to convert sales in order to make money," Bane said. "They make ad money and they make transaction-split money [from purchases]."

As an example of retention strategy, Bane pointed to Amazon.com's announcement earlier this month to acquire database technology firm Junglee Corp. in a stock swap worth $180 million and PlanetAll in a separate stock swap worth $100 million. Junglee and PlanetAll bring technology that Amazon.com hopes will give its customers or viewers two more reasons to stay on the site longer or come back more frequently, she said.

"You have to keep up with the Joneses in this space and hope that you're not just keeping up, but that the technologies you're acquiring are giving you some kind of competitive advantage," Bane said.